FDIC-Insured - Backed by the full faith and credit of the U.S. GovernmentDeciding how to save for retirement is a major milestone. It marks the point where you shift from simply earning for today to strategically building your financial future, and choosing the right savings vehicle is your crucial next step.
At AAA Banking, we support the two most common types of Individual Retirement Accounts (IRAs): Traditional and Roth. Here is a straightforward breakdown of how they work, how they benefit you, and how they differ.
Traditional IRA
A traditional IRA is a tax-advantaged personal savings plan where contributions may be tax deductible.
| The Core Benefit | Tax-deferred growth. You do not pay taxes on your investment earnings until you withdraw them in retirement. In many cases, your contributions may also be tax-deductible in the year you make them, lowering your current taxable income. |
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| Who it is For | Generally best if you expect to be in a lower tax bracket during retirement than you are today. |
| Workplace Plan Notice | If you or your spouse are covered by an active workplace retirement plan (such as a 401(k)), your ability to deduct your Traditional IRA contribution on your taxes may be limited based on your income. |
Roth IRA
A Roth IRA is a tax-advantaged personal savings plan where contributions are not deductible but qualified distributions may be tax free.
| The Core Benefit | Tax-free growth. You contribute "after-tax" dollars (meaning you get no upfront tax deduction), but all future earnings and qualified withdrawals during retirement are 100% tax-free. |
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| Who it is For | Generally best if you are in a lower tax bracket now and expect your income and tax rate to rise in the future. |
| Workplace Plan Notice |
The IRS restricts direct contributions to Roth IRAs for higher-income earners. If your Modified Adjusted Gross Income (MAGI) exceeds the limits below, you cannot contribute directly to a Roth IRA:
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Standard Terms at a Glance
| Traditional IRA | Roth IRA | |
|---|---|---|
| Tax Treatment | Pre-tax (Tax-deferred growth) | After-tax (Tax-free growth) |
| Withdrawal Taxation | Taxed as ordinary income | 100% tax-free (Qualified withdrawals) |
| Required Distributions (RMD) | Must start taking distributions at age 73 | No lifetime RMDs |
Professional Financial & Tax Advisory
IRA eligibility, tax deductibility, and contribution parameters are subject to highly specific income calculations and shifting federal regulations. Because tax situations are unique to each individual's circumstances, we strongly advise consulting with a certified public accountant (CPA) or a credentialed financial advisor to verify your personal eligibility prior to establishing or funding an account.
For comprehensive federal guidelines, you may also refer directly to official resources on the IRS Individual Retirement Arrangements (IRAs) page.
Support
While we are happy to assist with questions regarding account operations and features, we will not provide tax or financial advice. For guidance tailored to your specific financial and tax situation, or for questions regarding tax deductions, please consult a qualified tax professional or financial planner.
For questions about opening an IRA, you contact Customer Service Monday-Friday 9am-9pm ET by dialing 855.999.2265 or emailing support@acg.grasshopper.bank.
For your convenience, we also offer support via secure message or chat.
The content provided in this article is intended for educational and informational purposes only. It is not intended to be, and should not be construed as, financial, investment, tax, or legal advice. We strongly recommend consulting with a qualified financial advisor, tax professional, or legal counsel regarding your specific circumstances before making any financial or tax-related decisions.
AAA Banking services are provided by Grasshopper Bank, N.A.